4 th Quarter Financial Results February 10, 2006

2 Forward-Looking Statements In addition to historical information, this presentation contains a number of "forward-looking statements" as defined in the Private Securities Litigation Reform Act of Words such as anticipate, expect, project, intend, plan, believe, and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These include statements with respect to: regulation and the status of retail generation service supply competition in states served by Allegheny Energy's delivery business, Allegheny Power; the closing of various agreements; execution of restructuring activity and liquidity enhancement plans; results of litigation; financing requirements and plans to meet those requirements; demand for energy and the cost and availability of inputs; demand for products and services; capacity purchase commitments; results of operations; capital expenditures; regulatory matters; internal controls and procedures and outstanding financial reporting obligations; and stockholder rights plans. Forward-looking statements involve estimates, expectations, and projections and, as a result, are subject to risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Factors that could cause actual results to differ materially include, among others, the following: execution of restructuring activity and liquidity enhancement plans; complications or other factors that render it difficult or impossible to obtain necessary lender consents or regulatory authorizations on a timely basis; general economic and business conditions; changes in access to capital markets; the continuing effects of global instability, terrorism, and war; changes in industry capacity, development, and other activities by Allegheny's competitors; changes in the weather and other natural phenomena; changes in technology; changes in the price of power and fuel for electric generation; the results of regulatory proceedings, including those related to rates; changes in the underlying inputs, including market conditions, and assumptions used to estimate the fair values of commodity contracts; changes in laws and regulations applicable to Allegheny, its markets, or its activities; environmental regulations; the loss of any significant customers and suppliers; the effect of accounting policies issued periodically by accounting standard-setting bodies; additional collateral calls; and changes in business strategy, operations, or development plans. Additional risks and uncertainties are identified and discussed in Allegheny Energy's reports filed with the Securities and Exchange Commission.

3 Non-GAAP Financial Measures This presentation includes non-GAAP financial measures as defined in the Securities and Exchange Commission’s Regulation G. Where noted, the presentation shows certain financial information on an “as adjusted” basis, to exclude the effect of certain items as described herein. By presenting “as adjusted” results, management intends to provide investors with a better understanding of the core results and underlying trends from which to consider past performance and prospects for the future. Users of this financial information should consider the types of events and transactions for which adjustments have been made. “As adjusted” information should not be considered in isolation or viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as measures of our operating performance or liquidity. In addition, the “as adjusted” information is not necessarily comparable to similarly titled measures provided by other companies. Pursuant to the requirements of Regulation G, we have attached a table that reconciles the non-GAAP financial measures in this presentation to the most directly comparable GAAP measures. The table is also available at

4 Paul Evanson Chairman, President and Chief Executive Officer

5 Earnings per Share As reported$0.02$0.48 As adjusted Fourth Quarter Results

6 Events in Early December  Four large units off line  Heavy POLR demand  Very high PJM prices  Adverse impact: $0.10 per share

7 Availability Improvement Program On Track 2008 Goal Proforma* Actual * Excludes extended unplanned outages at Hatfield, Pleasants (supercritical units) 2005

8 Power Plant Investment Maintenance Spending ($ millions)

9 Availability Improvement Program On Track  Over 30 improvement project teams  New vice president-operations, regional plant director  Expect lower unplanned outage rate in 2006

10 Achieving 91% Availability by 2008 Outage Rate (supercritical units) 22% 24% 17% 15% 9% Reduce planned outages Reduce unplanned outages 18%

11 Earnings per Share As reported$0.40($1.83) As adjusted Accomplishments: Earnings Growth

Accomplishments: Completed Asset Sales  West Virginia gas assets  Wheatland generating facility  Ohio service territory

Accomplishments: Reduced Debt  $1.9 billion since Dec. 1, 2003  $919 million in 2005  Refinanced nearly $2 billion  Improved credit ratings; one step below investment grade

Accomplishments: Controlled Costs  Reduced O&M by nearly $40 million  Outsourced information technology functions  On track to achieve O&M target of $ million

Accomplishments: Improved Service Reliability Service Unavailability (average minutes without power)

Accomplishments: Managed Transition to Market  Pennsylvania rate cap extensions/increases approved  Won supply contracts in Pennsylvania, Maryland  Contracted 95% of 2006 generation

Accomplishments: Contracted Coal Supplies  Contracted POLR requirements through 2008  Announced development of coal reserves

Accomplishments: Environmental Stewardship  West Virginia securitization legislation approved  Expect PSC decision by early April

Priorities  Strong earnings growth  Environmental stewardship

Priorities  Strong earnings growth  Environmental stewardship  Transmission investments  Strengthen financial condition; investment grade by year-end 2007

21 Jeffrey Serkes Senior Vice President and Chief Financial Officer

22 Financial Results 3 Months Ended December Net income$3$72 Diluted income per share ($ millions except EPS)

23 Financial Results 3 Months Ended December Net income$3$72 Diluted income per share Accounting change(6)--- Discontinued operations6(9) Continuing operations: Income Diluted income per share ($ millions except EPS)

24 Adjustments 3 Months Ended December 31 ($ millions, pre-tax) OVEC gain---($95) Financing costs---9 Severance---4

25 Adjusted Income From Continuing Operations 3 Months Ended December 31 $ millionsDiluted EPS

26 EBITDA From Continuing Operations 3 Months Ended December 31 ($ millions) As reportedAs adjusted

27 EBITDA From Continuing Operations Year Ended December 31 ($ millions) As reportedAs adjusted

28 Plant Outage Days December 1-16

29 PJM Prices in 2005 $ per MWH* Outages at 4 units * Daily average, round-the-clock, APS zone

30 Generation Shortfall and PJM Prices December 1-16, 2005 PJM Price: Day-ahead APS Zone POLR Demand Exceeded Plant Output

31 ($ millions) Better (Worse) Total operating revenues $724 $688$36 Financial Results 3 Months Ended December 31

32 Key Drivers of Revenue Increase 3 Months Ended December 31 ($ millions) Better (Worse) Maryland: market-based rates$39 Ohio: Supply contract expiration 22 Increased plant output18

33 Plant Output Up 2.6% Despite Outages (MWH millions)

34 Utility MWH Sales Up 2.6% from 4 th Quarter 2004 (MWH millions)

35 Key Drivers of Revenue Increase 3 Months Ended December 31 ($ millions) Better (Worse) Maryland: market-based rates$39 Ohio: Supply contract expiration 22 Increased plant output18 Customer growth9 PJM purchases, higher market prices(50) All other (2) TOTAL INCREASE IN REVENUES$36

36 ($ millions) Better (Worse) Total operating revenues$724$688$36 Operating expenses650457(193) Operating income$ 74$231($157) Key factors - operating expenses: OVEC gain($95) Fuel, purchased power, deferred energy(80) O&M(17) Financial Results 3 Months Ended December 31

37 ($ millions) Better (Worse) Fuel and deferred energy$188$147($41) Key factors: Higher coal costs($29) Higher gas costs(6) Operating Expense 3 Months Ended December 31

38 Increased Coal Costs  Coal cost increased ~$5/ton  Burned ~300,000 more tons  Coal plant output increased 437,000 MWH  Increased output from lower-margin subcritical units

39 Coal Plant Output 3 Months ended December 31 (MWH millions)

40 ($ millions) Better (Worse) Fuel and deferred energy$188$147($41) Purchased power12182(39) TOTAL$309$229($80) Key factors: Higher coal costs($29) Higher gas costs(6) Purchased power, MD and OH(35) Operating Expense 3 Months Ended December 31

41 Year-to-Year Better/(Worse) $ millions ($19)Increased special maintenance (9)Snowstorm 6Lower outside services 4Severance costs in All other ($17)TOTAL INCREASE IN O&M EXPENSE O&M Expense 4 th Quarter 2005

42 Operating Expense 3 Months Ended December 31 ($ millions) Better (Worse) Fuel, purchased power, deferred energy$309$229($80) Operations and maintenance (17) Depreciation and amortization7877(1) Taxes other than income taxes5251(1) Ohio/OVEC sales (1) (95) (94) TOTAL OPERATING EXPENSE$650$457($193)

43 ($ millions) Better (Worse) Operating income$74$231($157) Interest expense: As reported71100 Financing costs---(9) As adjusted$71$91$20 Reduced Interest Expense 3 Months Ended December 31 Key factors – interest expense: Lower debt balance Lower rates

44 Strengthening the Balance Sheet Debt Outstanding ($ billions; year end) Equity Ratio (year end)

<3.5 Dec Dec Dec Target Improving Credit Statistics Debt/EBITDA* >4.0 Dec Dec Dec Target EBITDA/Interest* * Based on adjusted EBITDA and adjusted interest for 12-month periods. Excluding securitized debt and interest: Debt/EBITDA = 4.3, EBITDA/Interest = 3.0 at December 2005.

46 Income Taxes, Q  Effective tax rate = 77%  Includes $7 million charge  Charge reduced EPS by $0.04

47 Income, Continuing Operations 3 Months Ended December 31 Better (Worse) As reported: - $ millions$3$81($78) - Per share (0.51) As adjusted: per share (0.20)

48 Cash Flow Periods ending December 31, 2005 ($ millions) 3 Months12 Months Net cash from operations: As reported$153$486 As adjusted* Capital expenditures (102) (306) FREE CASH FLOW$51$257 * Excludes costs for St. Joe’s senior notes redemption and convertible trust preferred securities tender offer.

49 Increasing Free Cash Flow ($ millions) Adjusted Cash from Operations net of Capital Expenditures

Earnings Growth: Key Drivers CONTRIBUTION TO PRE-TAX INCOME ($ millions; estimates*) Pennsylvania rates$55 Maryland transition to market55 Ohio territory sale35 Market pricespositive/negative December 2005 adjustment27 Plant availabilityno impact Higher coal costs(80) SO 2 allowance costs(10) Lower O&M expense>20 Lower depreciation, capitalize O&M>50 Lower interest expense 65 Other factorspositive/negative * 2006 vs as adjusted